WAEC SSCE - Economics - 1997

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The largest employment sector in a typical West African country is likely to be agriculture. Agriculture has historically been a major sector in most West African countries, with many people involved in subsistence farming or small-scale commercial farming. In addition, many large-scale commercial farms also operate in the region, contributing to the overall employment numbers in the sector. While other sectors such as manufacturing, transportation, construction, and petroleum may also provide employment opportunities, they are generally smaller in scale and may not employ as many people as agriculture.

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The problem of inflation is not a problem in a barter economy. In a barter economy, goods and services are exchanged directly without the use of money. Inflation is a general increase in prices of goods and services in an economy over time. Since there is no money involved in a barter system, there cannot be inflation. The other options listed, such as double coincidence of wants, indivisibility of goods and services, bulkiness of commodities, and multiple exchange rates are all challenges faced in a barter economy.

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When government expenditure exceeds its revenue, it leads to a budget deficit. This means that the government is spending more than it is earning. The deficit can be caused by factors such as high government spending on public projects, low tax revenue or both. The government can borrow money to finance the deficit, which can lead to an increase in public debt. The opposite of a budget deficit is a budget surplus, which occurs when government revenue exceeds expenditure. A balanced budget is when government expenditure is equal to government revenue. A budget statement is a document that outlines the government's plans for revenue and expenditure for a given period. An unfavorable budget is one that has more negatives than positives for the economy, such as higher taxes, reduced spending on social programs, or inefficient use of resources.

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The term of trade refers to the ratio between the index of export prices and the index of import prices of a country. In other words, it is a measure of the value of a country's exports relative to its imports. It reflects the amount of imports that a country can purchase with a given quantity of its exports. A favorable term of trade means that a country can purchase a greater amount of imports for a given amount of its exports, while an unfavorable term of trade means that a country can purchase a lesser amount of imports for the same amount of its exports.

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Development banks are essentially different from commercial banks because they provide medium and long-term loans for developmental projects such as industries, infrastructure development, agriculture, and housing, whereas commercial banks provide short-term loans and accept deposits from the public. Development banks are established to promote economic development in the country and provide financial assistance for long gestation projects, which commercial banks may not be willing to finance. They also provide technical assistance, consultancy services and managerial expertise to borrowers. Therefore, the primary focus of development banks is to promote economic development and social welfare, whereas the primary focus of commercial banks is to earn profit by providing banking services.

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The foregone alternative in economics is known as the opportunity cost. It is the cost of the next best alternative that must be foregone to pursue a certain action or decision. In simpler terms, it is the value of the alternative that was not chosen. For example, if a person decides to spend money on buying a new car, the opportunity cost would be the value of the other things that could have been purchased with that money, such as a vacation or a house. The concept of opportunity cost is important in economics as it helps individuals and businesses to make rational and informed decisions by considering the alternatives and their associated costs.

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Marginal utility is the additional satisfaction obtained from consuming an additional unit of a commodity. The marginal utility of a commodity depends on the price of the commodity and the marginal utility of the other commodities. To maximize the total utility, the consumer needs to allocate their income between the two commodities in such a way that the marginal utility per unit of money spent on each commodity is equal. Therefore, the marginal utilities of two commodities, A and B, are maximized when the ratio of the marginal utility to the price of each commodity is equal: MA/PA = MB/PB This is known as the condition of consumer equilibrium, and it ensures that the consumer is allocating their income in the most efficient way possible to maximize total utility. Any other ratio of marginal utility to price for the two commodities will result in a lower total utility.

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The given scenario demonstrates that when the price of the product is reduced, the quantity demanded increases. This implies that the consumers are sensitive to the price changes of the product, and a small change in price leads to a relatively larger change in the quantity demanded. Therefore, the product's demand is elastic.

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A tariff is a type of tax that a government levies on imports and sometimes exports of goods. It is a form of trade barrier that is intended to protect domestic industries and jobs from foreign competition. When a country imposes a tariff on imported goods, it makes those goods more expensive to purchase in the domestic market, which may lead to a decrease in their demand. This may lead to an increase in demand for domestically produced goods, which may result in increased production and employment in the domestic market. However, it may also lead to retaliatory tariffs from other countries, which can harm international trade and economic growth.

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One of the instruments of protection of infant industries is a tariff. A tariff is a tax imposed on imported goods to make them more expensive and less competitive with domestically produced goods. This is done to protect the domestic industries, including those which are still in their infancy, from being outcompeted by foreign firms. By increasing the price of imported goods, a tariff makes it easier for domestic industries to compete, thus allowing them to grow and develop without being driven out of business by foreign competition. Therefore, tariffs are commonly used as a form of protectionist trade policy, especially in developing economies that have relatively young and small industries.

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The correct option is "bank sellers" because it is not a form of money. Bank notes, demand deposits, coins, and currency are all forms of money that can be used for transactions. Bank notes are physical currency issued by a central bank, while demand deposits are funds held in a checking account that can be easily accessed. Coins are small pieces of physical currency that are used for smaller transactions. Currency refers to any form of money that is widely accepted as a medium of exchange, including bank notes and coins. On the other hand, bank sellers are not a form of money, but rather individuals or institutions that sell financial products or services such as stocks, bonds, or insurance.

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Emigration will not increase the population of a country because emigration refers to the movement of people out of a country to reside in another country. This means that people are leaving the country, which decreases the population. The other options, such as an increase in birth rate, decrease in death rate, better medical services, and immigration, would all contribute to an increase in the population of a country.

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Economics is often described as a science because it uses scientific methods to explain observed economic phenomena. It relies on empirical evidence and data analysis to understand how people make choices and how markets operate. While economics does not rely on laboratory experiments or controlled experiments like some other sciences, it still seeks to explain and predict human behavior in a systematic and objective way.

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The correct answer is (C) I and II only. In the long run, potential Gross National Product (GNP) is variable because of technological change and the fact that the quantity of labor and capital is not fixed. Technological change leads to an increase in productivity, which in turn leads to an increase in output. Also, the quantity of labor and capital can be increased through investment and population growth, respectively. This means that the potential output of an economy can increase over time. On the other hand, unemployment is not directly related to potential GNP and can be affected by a variety of factors, such as changes in government policies or the business cycle. Therefore, option III is incorrect. In summary, the correct answer is (C) I and II only, because potential GNP can vary due to technological change and changes in the quantity of labor and capital.

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When the death rate for old people and the infant mortality rate are high, it means that a large number of old people and babies are dying. If there is no migration, this would result in a higher number of younger people in the population. This is because when the infant mortality rate is high, a large number of babies are dying which reduces the number of children in the population. Similarly, when the death rate for old people is high, it reduces the number of old people in the population. Therefore, the remaining population would mostly consist of younger people.

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Hoarding in distributive trade refers to the practice of withholding goods from the market with the intention of creating artificial scarcity and driving up prices. This can lead to a decrease in the supply of goods, which can cause prices to rise and make the goods less affordable or unavailable for consumers. Therefore, the correct option is "artificial scarcity of goods."

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When the demand for goods and services increases, this can lead to an increase in prices, which results in demand-pull inflation. One way to curb this type of inflation is by increasing the level of output of goods and services, as this will help to meet the increased demand and reduce the pressure on prices. By increasing the production of goods and services, the supply of goods and services will increase, and this will help to reduce the demand for goods and services, which will in turn reduce the pressure on prices. Therefore, increasing the level of output is an effective way to curb inflation caused by an increase in demand.

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Scarcity in economics means that resources are limited relative to wants. This means that there are not enough resources available to satisfy all the unlimited human wants and needs. Since resources such as land, labor, capital, and entrepreneurship are scarce, choices must be made regarding how to allocate these resources efficiently to produce the goods and services that will best satisfy the most urgent wants and needs. This necessitates making trade-offs and prioritizing wants and needs, which is the fundamental problem of economics.

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Goods are said to be in competitive demand when they are substitutes, meaning that consumers can choose to buy one or the other based on factors such as price or personal preference. For example, if the price of tea increases, consumers may switch to buying more coffee instead, indicating that tea and coffee are in competitive demand. This is because they serve a similar function as a hot beverage and are easily interchangeable.

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When there is a shift in supply curve to the right, it indicates that the producers are willing to supply more goods at each given price level. As a result, the equilibrium quantity of the product will increase, leading to a fall in price and an increase in supply. This is because the producers are producing more goods and selling them at a lower price to remain competitive in the market. Therefore, the correct option is: a fall in price but an increase in supply.

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Free trade refers to the absence of restrictions on international trade, such as tariffs, quotas, or other barriers. In a free trade system, goods and services can move freely between countries without significant government intervention or protectionism. This allows producers and consumers to engage in trade with fewer restrictions and typically results in lower prices and a greater variety of goods and services available to consumers.

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An outward shift in the production possibility curve occurs when a country is able to produce more goods and services with the same resources it had before. Economic growth is the most likely cause of this shift. When a country experiences economic growth, it means that it is producing more goods and services and generating more income. This can be due to various factors, such as increased productivity, new technologies, improved infrastructure, increased investment, or better education and health among the population. As a result of this growth, the country can produce more goods and services, leading to the outward shift in the production possibility curve. Therefore, the correct answer is "economic growth".

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The indigenisation policy in Nigeria is aimed at increasing equity participation and control by Nigerians in businesses operating in Nigeria. The policy was introduced in the 1970s and aimed to transfer ownership and control of companies operating in Nigeria from foreign investors to Nigerians. The policy required foreign companies operating in Nigeria to sell at least 60% of their shares to Nigerians. The goal was to promote local content and increase economic empowerment of Nigerians. The policy has since been modified and some of its provisions have been relaxed to attract foreign investment, but the overall goal of promoting Nigerian ownership and control of businesses in the country remains.

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A stock exchange is a market that deals with the purchase and sale of securities. Securities are financial instruments that represent ownership in a company or organization. When a company wants to raise funds, it can issue securities, such as stocks or bonds, which can then be bought and sold on a stock exchange. Investors can buy securities as a way of investing in a company, and they can sell their securities if they need to liquidate their assets. The stock exchange provides a platform for investors to trade securities and allows companies to raise funds through the sale of securities.

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The formula for calculating price elasticity of demand coefficient is the percentage change in quantity demanded divided by the percentage change in price. This formula helps us to determine the sensitivity of demand for a particular good or service to changes in its price. If the coefficient is greater than 1, demand is considered elastic, meaning that a change in price will have a larger effect on the quantity demanded. If the coefficient is less than 1, demand is considered inelastic, meaning that a change in price will have a smaller effect on the quantity demanded. If the coefficient is equal to 1, demand is considered unit elastic, meaning that a change in price will have an equal effect on the quantity demanded.

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International trade is different from internal trade because it involves the exchange of goods and services between different countries, while internal trade involves the exchange of goods and services within the same country. The difference is not based on the manufactured goods involved or homogeneity/heterogeneity of products or uniformity of prices, but rather the involvement of currency differentials. In international trade, currencies of different countries are used, and exchange rates play a significant role in determining the prices of goods and services being traded. In contrast, internal trade is conducted using the same currency, and exchange rate fluctuations do not affect prices.

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In a public company, entrepreneurial functions are performed by the board of directors. The board of directors is responsible for making important decisions that affect the company's direction, such as setting goals, developing strategies, and making major investments. They also have the responsibility of hiring and firing top-level executives, and ensuring that the company complies with all relevant laws and regulations. Overall, the board of directors plays a crucial role in the success of a public company, and their entrepreneurial functions are key to driving the company's growth and profitability.

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The optimum population of a country is reached when the output per head is at its highest with a given volume of resources. This means that the country has reached a point where its population is neither too large nor too small for the available resources to support. At this point, every individual in the population is able to produce and consume at the highest level possible, without putting too much strain on the available resources. Any increase or decrease in population from this point will lead to a decrease in output per head, which will ultimately lead to a decrease in the standard of living.

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Hoarding in distributive trade refers to the practice of withholding goods from the market in order to create an artificial scarcity, which allows sellers to charge higher prices. This means that the goods become less available to consumers, which leads to a decrease in the supply of goods in the market. As a result, consumers may have to pay higher prices for the goods or may even find it difficult to obtain them at all. Therefore, the correct answer is "artificial scarcity of goods."

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Labour has a derived demand. This means that the demand for labour is not for its own sake, but for the goods or services it helps to produce. For example, a bakery may demand labour to produce bread, but it is not the labour that is desired, but the bread that the labour produces. The demand for labour is thus derived from the demand for the goods or services that it helps to produce.

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The division of labour is a system of work where tasks are divided into smaller and specialized tasks, with each worker responsible for a specific task. One of the disadvantages of this system is that it makes work monotonous. This is because workers are repeatedly performing the same task repeatedly and may get bored, which could lead to a decrease in productivity. However, the division of labour also has advantages, such as saving time, allowing greater use of machinery, encouraging full utilization of capital, and making workers skilled at their work.

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The function of commercial banks is to accept deposits from customers, which they then use to lend out to borrowers in the form of loans. This is known as the primary function of commercial banks. By accepting deposits, commercial banks provide a safe place for customers to store their money and earn interest on their savings. They also provide loans to businesses and individuals to help them finance investments or purchases. Commercial banks do not issue currencies; that is the function of the central bank. The central bank also serves as the bankers' bank, not commercial banks. Commercial banks do not determine the rate of interest; they adjust their rates based on market forces. Lastly, the increase of time in learning a trade is not a function of commercial banks.

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Money is anything that is generally acceptable as a means of payment for goods and services and in the settlement of debts. To perform this role well it acts as a medium of exchange, a measure of value, a store of value and a standard for deferred payments.

Why people prefer to hold money (liquidity preference). According to Keynes, people demand to hold money in cash rather than in other assets for three main motives:

1. Transactions motive: money is held to meet day-to-day spending on goods and services (food, transport, bills) between the times income is received.
2. Precautionary motive: money is held as a reserve against unforeseen or emergency needs such as sickness, accident or sudden opportunities to buy.
3. Speculative motive: money is held to take advantage of future changes in the price of assets such as bonds; people keep cash to buy bonds when their prices are expected to fall (interest rates to rise), and hold fewer bonds when prices are high.

In addition, money is preferred because it is the most liquid of all assets: it can be used immediately without loss of value or delay in converting it into other things.

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A joint stock company is a business owned by many shareholders whose capital is divided into transferable shares and which has a separate legal existence from its owners, while a one-man business (sole proprietorship) is owned and run by a single person. The company is preferable for the following reasons:

1. Limited liability: a shareholder can only lose the amount he invested, and his personal property is safe if the company fails. A sole trader has unlimited liability and can lose personal assets to settle business debts.
2. Larger capital: a company can raise very large sums by issuing shares and debentures to many people, whereas the sole trader is limited to personal savings and small loans.
3. Continuity of existence: because it is a separate legal person, a company continues to exist despite the death, illness or withdrawal of any owner. A one-man business usually collapses on the death of the owner.
4. Economies of scale: the larger size of a company allows it to buy in bulk, use specialised machinery and employ experts, lowering average cost. The small sole trader cannot enjoy these fully.
5. Specialisation and better management: a company can employ skilled managers for different departments (finance, production, marketing), giving more efficient management than one person handling everything.

Any five, well explained, complete the answer.

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(a) Balance of Payments (BOP) is a systematic record of all economic and financial transactions between the residents of a country and the rest of the world over a given period, usually one year. It shows total receipts (inflows) against total payments (outflows) of foreign exchange.

(b) Main components.

1. Current account: records trade in goods and services and income flows. It contains:
   • the visible trade (merchandise) account, the export and import of physical goods, giving the balance of trade;
   • the invisible trade account, the export and import of services such as banking, insurance, shipping and tourism;
   • income and current transfers, such as interest, dividends, remittances and gifts.
2. Capital and financial account: records international movements of capital, such as foreign direct investment, portfolio investment, loans and the purchase or sale of assets.
3. Official reserves (monetary movements): records changes in the country's external reserves and transactions with bodies such as the IMF, used to balance any surplus or deficit on the other accounts.

By definition the overall balance of payments always balances because any deficit or surplus on current and capital accounts is offset by movements in official reserves.

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(a) Population census is the official counting of all the people living in a country at a particular point in time, together with the collection of information about them such as age, sex, occupation, religion and location.

(b)(i) Implications of optimum population. Optimum population is the population size that, given the available resources and technology, produces the highest output per head. Its implications are:

• Resources are fully and efficiently utilised, giving maximum income per head and the highest standard of living.
• The right balance exists between labour and other resources, so there is neither serious labour shortage nor surplus.
• Employment opportunities match the size of the working population, keeping unemployment low.

(b)(ii) Implications of over-population. Over-population exists when the population is larger than the resources can support, so output per head falls. Its implications are:

• Falling output per head and a lower standard of living because too many people share limited resources.
• High unemployment and under-employment as jobs are fewer than job seekers.
• Pressure on social amenities such as schools, hospitals, housing and water, leading to congestion.
• Increased poverty, food shortage and pressure on land, which may cause emigration and social unrest.

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Distribution is the movement of goods and services from producers to final consumers. In Nigeria this process faces several problems:

1. Poor transport infrastructure: bad roads, inadequate railways and congested ports delay the movement of goods, raise transport costs and cause perishable produce to spoil before reaching the market.
2. Inadequate storage facilities: shortage of warehouses, silos and cold-storage means farm produce is wasted, and goods cannot be held to smooth supply over time.
3. Too many middlemen: a long chain of wholesalers, retailers and agents each add a margin, so the final price to the consumer becomes high while producers earn little.
4. Insecurity: armed robbery, banditry and communal conflicts along trade routes discourage the free movement of goods and increase costs through losses and higher insurance.
5. Shortage of capital and credit: many traders lack funds to buy in bulk, hold stock or expand, limiting the volume and efficiency of distribution.
6. Poor communication and market information: traders often do not know where goods are scarce or plentiful, leading to gluts in some areas and shortages in others.

Any five of the above, each clearly explained, gives a complete answer.

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Super-normal profit of a monopolist is earned when the price charged is greater than the average cost of producing the equilibrium output.

A monopolist is in equilibrium at point E, where marginal cost equals marginal revenue, that is, \(MC=MR\). The equilibrium output is \(OQ\), obtained by dropping a perpendicular from E to the output axis.

At output \(OQ\), the monopolist fixes the price at \(OP\), as shown by point P on the average revenue (demand) curve. The average cost of producing this output is \(OC\), shown by point C on the AC curve.

Since \(OP>OC\), the firm earns super-normal profit per unit equal to:

\[OP-OC=PC\]

Therefore, total super-normal profit is:

\[\text{Super-normal profit}= (OP-OC)\times OQ=PC\times OQ\]

It is represented by the shaded rectangle PCBA. Total revenue is \(OP\times OQ\), while total cost is \(OC\times OQ\). Thus:

\[\text{Profit}=\text{Total Revenue}-\text{Total Cost}=(OP\times OQ)-(OC\times OQ).\]

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Each column must add up to its total, so the missing figures are found by subtraction.

(a)
\(X=\) the 11-14 total \(=2{,}275+2{,}725=5{,}000\).
\(Y=\) males aged 36-64 \(=7{,}500-4{,}265=3{,}235\).
\(Z=\) females aged 65 and above \(=6{,}000-3{,}250=2{,}750\).

(b) Total population \(=4{,}000+5{,}000+2{,}500+7{,}500+6{,}000=25{,}000\).

(c) Aged 14 and below: males \(=1{,}350+2{,}275=3{,}625\); females \(=2{,}650+2{,}725=5{,}375\). Difference \(=5{,}375-3{,}625=1{,}750\) (there are 1,750 more females).

(d) Percentage aged 14 and below \(=\dfrac{3{,}625+5{,}375}{25{,}000}\times100=\dfrac{9{,}000}{25{,}000}\times100=36\%\).

(e) Dependants are those aged 14 and below (9,000) and 65 and above (6,000), a total of 15,000; the working group (15-64) is \(2{,}500+7{,}500=10{,}000\). Dependency ratio \(=\dfrac{15{,}000}{10{,}000}=1.5\) (that is 150%, or 3 dependants to every 2 workers).

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(a) Opportunity cost is the real cost of a choice measured in terms of the next best alternative that is given up when that choice is made. Because human wants are unlimited while the resources to satisfy them are scarce, every decision to use resources for one purpose means sacrificing another purpose. For example, if a farmer uses a plot of land to grow maize, the opportunity cost is the yam he could have grown on the same land instead.

(b) Relevance of the concept.

To the individual:

• Consumer spending: a consumer with a limited income must decide what to buy; spending on one good means forgoing another, so he weighs the alternatives to get maximum satisfaction.
• Use of time: a student choosing to attend classes forgoes leisure or paid work, guiding a rational use of scarce time.

To the firm:

• Allocation of resources: a firm decides which product to produce with its limited capital and labour; producing one line means giving up another, so it chooses the most profitable use.
• Investment decisions: funds tied up in one machine cannot be used elsewhere, so the firm compares expected returns of competing projects.

To the government:

• Public spending priorities: with a limited budget, money spent on defence may mean fewer hospitals or schools, so government ranks projects by their benefit to society.
• Planning and taxation: deciding how to use national resources (for example roads versus power) forces a choice among competing development needs.

In every case the concept promotes rational decision-making by making the decision-maker compare what is gained against what is sacrificed.

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The petroleum industry is central to Nigeria's economy and has both positive and negative effects.

Positive effects (any three):

1. Source of government revenue: oil provides the largest share of government income through royalties, taxes and sales, financing budgets and development projects.
2. Foreign exchange earner: crude oil is Nigeria's main export, earning the bulk of the country's foreign exchange for imports and debt servicing.
3. Employment and income: the industry creates direct and indirect jobs (exploration, refining, transport, services), raising incomes and living standards.
4. Infrastructural and industrial growth: oil wealth has helped fund roads, power and by-products (petrol, kerosene, petrochemicals) that support other industries.

Negative effects (any two):

1. Environmental pollution: oil spillage and gas flaring destroy farmland, rivers and fishing, harming the health and livelihood of oil-producing communities.
2. Over-dependence on one product: heavy reliance on oil makes the economy vulnerable to falls in world oil prices and has led to neglect of agriculture and manufacturing.
3. Corruption and social unrest: struggles over oil revenue have encouraged corruption, militancy and conflict in the Niger Delta.